Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2017
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from   to  

 

Commission File No.   000-52297

 

FBEC Worldwide, Inc.
(Exact name of registrant as specified in its charter)

 

Wyoming   06-1678089
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

1621 Central Ave, Cheyenne, WY 82001
(Address of principal executive offices) (Zip Code)
   
  (800) 785-4089
  (Registrant’s telephone number, including area code)
     

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨       Accelerated filer   ¨   
Non-accelerated filer ¨ Smaller reporting company x   
Emerging growth company ¨  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

The number of shares outstanding of the Registrant’s Common Stock as of February 2, 2018 was 3,582,383,902.

 

 

 

     

 

 

TABLE OF CONTENTS

 

  Page
   
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Balance Sheet 3
Consolidated Statement of Operations 4
Consolidated Statement of Cash Flows 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Item 4. Controls and Procedures 12
   
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 1A. Risk Factors 13
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Mine Safety Disclosures 13
Item 5. Other Information 13
Item 6. Exhibits 13
Signatures 14

  

 

 

 

  2  

 

  

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

  

FBEC WORLDWIDE, INC.

CONDENSED BALANCE SHEET

   

 

    September 30,
2017 		    December 31,
2016 		 
    (Unaudited)     (Audited)  
ASSETS            
Current Assets                
Cash   $ 741     $ 63,199  
Accounts receivable     335       170  
Inventories     34,358       –  
Total Current Assets     35,434       63,369  
                 
Property, plant, and equipment, net     837       837  
Intangible assets, net     50,000       50,000  
                 
Total assets   $ 86,271     $ 114,206  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
Current Liabilities:                
Accounts payable   $ 63,706     $ 54,350  
Accrued expenses     261,423       229,505  
Convertible notes payable, net of discount     555,773       968,456  
Derivative liabilities     939,321       1,280,733  
Total current liabilities     1,820,223       2,533,044  
                 
Total liabilities   $ 1,820,223     $ 2,533,044  
                 
Commitments and contingencies     –       –  
                 
Stockholders' Deficit:                
Preferred stock - par value $0.001; 20,000,000 shares authorized; 1,000 shares issued and outstanding     1          1   
Common stock - par value $0.001; 7,000,000,000 shares authorized; 3,582,383,902 and 138,889,083 shares issued and outstanding, respectively     3,582,384       138,889   
Additional paid-in capital     2,671,119       3,584,011  
Accumulated deficit     (7,987,456 )     (6,141,739 )
Total stockholders' deficit     (1,733,952 )     (2,418,838 )
                 
Total liabilities and stockholders' deficit   $ 86,271     $ 114,206  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

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FBEC WORLDWIDE, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

   

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2017     2016     2017     2016  
                         
Net revenues:                                
Net revenue   $ 443     $ 170     $ 964     $ 1,529  
Total net revenues     443       170       964       1,529  
                                 
Cost of Goods Sold     171       133       501       1,136  
                                 
Gross Income     272       37       463       393  
Operating expenses:                                
General, selling and administrative expenses     36,662       94,167       258,753       486,508  
                                 
Total operating expenses     36,663       94,167       258,753       486,508  
                                 
Income (loss) from operations     (36,391 )     (94,130 )     (258,290 )     (486,115 )
                                 
Other income (expense)                                
Interest expense     (14,199 )     (160,170 )     (52,542 )     (481,211 )
Amortization of debt discount     (34,014 )     –       (165,518 )     –  
Debt settlement loss     –       –       (1,094,054 )     –  
Loss on note penalties     (68,204 )     –       (155,416 )     –  
Gain (loss) on derivative liability     (675,372 )     95,947       (119,897 )     831,685  
Other expense     –       –       –       (37,022 )
                                 
Total other income (expense)     (791,789 )     (64,223 )     (1,587,427 )     313,452  
                                 
Income (loss) before income tax     (828,180 )     (158,353 )     (1,845,717 )     (172,663 )
                                 
Provision for income taxes     –       –       –       –  
                                 
Net income (loss)   $ (828,180 )   $ (158,353 )   $ (1,845,717 )   $ (172,663 )
                                 
Basic income (loss)  per share   $ –     $ –     $ –     $ –  
Diluted income (loss) per share   $ –     $ –     $ –     $ –  
Weighted average shares - Basic and Diluted     3,314,873,217       125,820,141       1,650,866,911       175,938,596  

 

The accompanying notes are integral part of these financials statements.

 

 

 

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FBEC WORLDWIDE, INC.

CONDENSED STATEMENT OF CASH FLOWS

(Unaudited)

 

    Nine Months ended September 30, 2017     Nine Months ended September 30, 2016  
             
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss   $ (1,845,717 )   $ (172,663 )
Adjustments to reconcile net loss to net cash used in operating activities:                 
(Gain) Loss on derivative liabilities     119,897       (831,686 )
Amortization debt discounts     165,518       399,793  
Note conversion penalties     155,416       –  
Non-cash consulting     50,000       –  
Loss on extinguishment of liabilities     1,094,054       37,022  
(Gain) loss on debt converted into common stock     –       35,772  
Loss on derivative expenses     –       238,759  
Changes in operating assets and liabilities:                
Inventory     (34,358 )     (5,599 )
Accounts receivable     (164 )     (170 )
Accounts payable and accrued expenses     106,896       89,327  
Net cash used in operating activities     (188,458 )     (209,445 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchase of Equipment     –       (837 )
Net cash flow used in investing activities     –       (837 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Stock issued for interest     –       2,187  
Proceeds from Convertibles Notes Payable     126,000       215,000  
Repayment of debt     –       (50,000 )
Net cash provided by financing activities     126,000       167,187  
                 
Net increase (decrease) in cash     (62,458 )     (43,095 )
Cash, beginning of year     63,199       45,309  
Cash, end of the period   $ 741     $ 2,214  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                
Interest paid   $ –     $ –  
Income taxes paid     –       –  
                 
NON-CASH INVESTING AND FINANCING ACTIVITIES:                
Common stock issued for conversion of debt   $ 50,000     $ 30,000  
Resolution of derivative liabilities     –       50,000  
Debt discount due to derivative liabilities     163,295       354,000  

 

The accompanying notes are an integral part of these consolidated financial statements. 

 

 

 

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FBEC WORLDWIDE, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

 

NOTE 1 – BASIS OF PRESENTATION AND GOING CONCERN

 

Interim Financial Reporting

 

While the information presented in the accompanying interim financial statements is unaudited, it includes all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with generally accepted accounting principles in the United States of America ("GAAP"). All adjustments are of a normal, recurring nature. Interim financial statements and the notes thereto do not contain all of the disclosures normally found in year-end audited financial statements and these Notes to Financial Statements are abbreviated and contain only certain disclosures related to the nine-month period ended September 30, 2017. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2016 as reported in the Form 10-K have been omitted. It is suggested that these interim financial statements be read in conjunction with our audited financial statements and related notes for the year ended December 31, 2016 included in our Form 10-K/A filed with the Securities Exchange Commission on July 28, 2017. Operating results for the nine months ended September 30, 2017 are not necessarily indicative of the results that can be expected for the period from January 1, 2017 through December 31, 2017.

 

Inventory

 

Inventories are valued at the lower of cost or net realizable value with cost using the first in first out method. All Company inventory are finished goods.

 

Reclassification of Financial Statements

 

The Balance Sheet at December 31, 2016 has been modified to conform to the 2017 presentation. Long term liabilities have been added to convertible notes and the debt discount has been subtracted. Derivative liabilities have been modified to reflect only its balance. There is no overall change to the total liabilities.

 

Earnings Per Share

 

We present both basic and diluted earnings per share (“EPS”) amounts in our financial reporting.  Basic EPS excludes dilution and is computed by dividing income available to Common Stock holders by the weighted-average number of Common Stock outstanding for the period.  Diluted EPS reflects the maximum potential dilution that could occur from our convertible debt.  Potential dilutive shares are excluded from the calculation if they have an anti-dilutive effect in the period. During the three months and the nine months ended September 30, 2017 and 2016, the shares underlying the outstanding convertible debt were excluded as their effect would have been anti-dilutive.

 

Going Concern

 

The accompanying unaudited consolidated financial statements have been prepared in conformity with GAAP, which contemplates continuation of the Company as a going concern, which is dependent upon the Company's ability to establish itself as a profitable business. At September 30, 2017, the Company has an accumulated deficit of $7,987,456 and a working capital deficit of $1,784,789. These matters raise substantial doubt about the Company's ability to continue as a going concern. These unaudited condensed financial statements do not include any adjustments that might result from the outcome of these uncertainties, nor do they include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation. The Company’s ability to continue in business is dependent upon obtaining sufficient financing or attaining profitable operations. However, there can be no assurance that management will be successful in obtaining additional funding or in attaining profitable operations.

 

 

 

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NOTE 2 – STOCKHOLDERS’ DEFICIT

 

The Company is authorized to issue up to 7,000,000,000 shares of common stock at $0.001 par value per share and 20,000,000 shares of preferred stock at $0.001 par value per share. As of September 30, 2017, and December 31, 2016, the Company had 3,582,383,902 and 138,889,083 shares of common stock plus 1,000 and 1,000 shares of Series A preferred stock issued and outstanding, respectively.

 

During the three and nine months ended September 30, 2017, the Company issued 1,595,623,333 and 3,378,494,819 common shares with values of $84,062 and $476,227 for the conversion debt, interest and penalties, respectively.

 

Certain shares were issued below par causing a reduction to paid in capital of $1,201,955 for the nine months ended September 30, 2017.

 

Additionally, during the nine months ended September 30, 2017 the Company issued 65,000,000 common shares for a debt settlement with a value of $1,228,500.

 

NOTE 3 – PROPERTY AND EQUIPMENT

 

Property and equipment are carried at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged to operations when incurred, while additions and improvements are capitalized. The Company depreciates the costs of these assets over their estimated useful lives. When assets are retired or disposed, the asset's original cost and related accumulated depreciation are eliminated from accounts and any gain or loss is reflected in income. Depreciation and amortization are generally accounted for using the straight-line method over the estimated useful lives of the assets as follows:

 

Office, protective and demonstration, and computer equipment   4 Years
Manufacturing equipment 10 Years
Leasehold improvements lease term

 

Long-lived Assets

 

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. The Company periodically evaluates whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, the Company uses market quotes, if available or an estimate of the future undiscounted net cash flows of the related asset or asset group over the remaining life in measuring whether or not the asset values are recoverable.

 

NOTE 4 – INTANGIBLE ASSET

 

In June 2015. the Company purchased a hemp-based drink formula for $50,000, paying $15,000 in cash and issuing a note for $35,000.

 

The Company's intangible asset is a license to use a hemp-based formula. The asset is deemed to be of indefinite life and is reviewed annually for impairment.

 

NOTE 5 – CONVERTIBLE NOTES PAYABLE

 

At September 30, 2017 and December 31, 2016, convertible notes payable consisted of the following:

 

    September 30, 2017     December 31, 2016  
Convertible notes payable   $ 590,526     $ 1,054,865  
Unamortized debt discounts     (34,753 )     (86,409 )
Total   $ 555,773     $ 968,456  

 

The outstanding convertible notes bear interest ranging from 8% to 12% on all notes in default and three notes from inception, are due on demand and are convertible into common stock at variable rates based upon discounts to the market price of the common stock. The Company identified embedded derivatives related to the outstanding convertible notes. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the convertible notes and to adjust the fair value as of each subsequent balance sheet date. At September 30, 2017, the aggregate fair value of the outstanding derivative liabilities was determined to be $939,321. The fair value of the embedded derivatives was determined using the Black Scholes Option Pricing Model based on the following assumptions:  

 

 

 

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The fair value of the outstanding embedded derivatives of $939,321 at September 30, 2017 was determined using the Black Scholes Option Pricing Model with the following assumptions:

 

Dividend yield:   -0-%
Market price of common stock:   $0.0002
Expected volatility:   Maximum
Risk free rate:   1.06%

 

At September 30, 2017, the Company adjusted the recorded fair value of the derivative liability to market resulting in a non-cash, non-operating loss of $675,372 and $119,897 for the three and nine months ended September 30, 2017, respectively.

 

The fair value of the outstanding embedded derivatives of $912,520 at September 30, 2016 was determined using the Black Scholes Option Pricing Model with the following assumptions:

 

Dividend yield:   -0-%
Market price of common stock:   $0.013
Expected volatility:   Maximum
Risk free rate:   0.36%

 

At September 30, 2016, the Company adjusted the recorded fair value of the derivative liability to market resulting in non-cash, non-operating gain of 95,947 and $831,685 for the three and nine months ended September 30, 2016.

 

In January 2017, the Company entered into a convertible debt agreement with a principal amount of $53,000 with 8% interest per annum. This note is convertible at a 42% discount to the average of the three lowest intraday trading prices of the 10 days preceding the conversion request. This note becomes convertible at or after maturity (180 days). The default interest rate is 22% per annum.

 

In February 2017, the Company entered into a convertible debt agreement with a principal amount of $33,000 with 12% interest per annum. This note is convertible at a 42% discount to the average of the three lowest intraday trading prices of the 10 days preceding the conversion request. This note becomes convertible at or after maturity (180 days). The default interest rate is 22% per annum.

 

In February 2017, the Company entered into a convertible debt agreement with a principal amount of $200,000 with 12% interest per annum. The Company had received $40,000 as of the filing date. This note is convertible at a 42% discount to the average of the lowest intraday trading price of the 25 days preceding the conversion request. This note is payable one year from each tranche date. The lender may convert at any-time at its choice. The default interest rate is 22% per annum.

 

In June 2017, the Company recorded a convertible promissory note for a non-cash commitment fee of $50,000 for a purchase agreement. The $50,000 was recorded as a non-cash consulting and included in the operating expenses in the three and six-month Statements of operations for the period ended June 30, 2017.

 

Notes in default and included in Current Notes Payable were $590,526 at September 30, 2017. During the nine months ending September 30, 2017 certain conversions reflected default penalties due to our delinquency in reporting its financial information in a timely and other default provisions related to these notes payable resulting in a total of $155,416 of conversions expensed as loss on note conversion penalties in the Statements of Operations for the nine months ended September 30, 2017. We recorded an expense of $68,204 the same type of expense for the three months with the same period ending September 30, 2017.

 

NOTE 6 – FAIR VALUE OF FINANCIAL INSTRUMENTS

 

ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value: 

   

 

 

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Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

  

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.

 

Items recorded or measured at fair value on a recurring basis in the financial statements consisted of the following items as of September 30, 2017 and December 31, 2016:

 

The derivative liabilities are measured at fair value using the Black Scholes Option Pricing Model including quoted market prices and estimated volatility factors based on historical prices for the Company’s common stock and are classified within Level 3 of the valuation hierarchy.

 

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities for the nine months ended September 30, 2017:

 

Derivative Liabilities

Balance, December 31, 2016   $ 1,280,733  
Additions     126,460  
Conversions     (347,975 )
Change in fair value     (119,897 )
Balance, September 30, 2017   $ 939,321  

 

NOTE 7– SUBSEQUENT EVENTS

 

On October 2, 2017, Power Up Lending Group, Ltd. (“Power Up”) filed a lawsuit against us alleging promissory note defaults, breach of contract for lost profits, breach of contract, and litigation expenses and violations of Section 10(b) and Rule 10(b)-5b of the Securities & Exchange Act of 1934 (Power Up Lending Group, Ltd. v. FBEC Worldwide, Inc., USDC, Eastern District of New York, Civil Action Nom CV- 17-5749). The Complaint seeks money damages for breach of contract and lost profits and reasonable attorney fees of $129,000. On November 19, 2017, we filed counterclaims against Power Up for criminal usury, violation of New York General Business Law 349 in connection with alleged misrepresentations by Power Up, unconscionably and interference with contract and business relationship. Our counterclaims seek an injunction from enforcing usurious loan agreements, more than $1,500,000 of damages and attorney fees.

 

We believe the notes payable and accrued interest in our accounting, through the date of filing this report, is adequate to represent our liability. We intend to defend this suit vigorously and prevail.

 

Subsequent events have been reviewed to the date of this report.

 

 

 

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

We urge you to read the following discussion in conjunction with management’s discussion and analysis contained in our Annual Report on Form 10-K for the year ended December 31, 2016, as well as with our unaudited financial statements and the notes thereto included elsewhere herein. FBEC Worldwide, Inc. is referred to herein as “we”, “us”, or “our”.

 

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

 

Our prospects are subject to uncertainties and risks. In this Quarterly Report on Form 10-Q, we make forward-looking statements in this Item 2 and elsewhere that also involve substantial uncertainties and risks. These forward-looking statements are based upon our current expectations, estimates and projections about our business and our industry, and reflect our beliefs and assumptions based upon information available to us at the date of this report. In some cases, you can identify these statements by words such as “if,” “may,” “might,” “will, “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” and other similar terms. These forward-looking statements include, among other things, projections of our future financial performance and our anticipated growth, descriptions of our strategies, our product and market development plans, and other objectives, expectations and intentions, the trends we anticipate in our business and the markets in which we operate, and the competitive nature and anticipated growth of those markets.

 

We caution readers that forward-looking statements are predictions based on our current expectations about future events. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Our actual results, performance or achievements could differ materially from those expressed or implied by the forward-looking statements as a result of a number of factors, including but not limited to the risks and uncertainties discussed in our other filings with the SEC or our sales results or changes in costs associated with ingredients for our products, manufacture of our products, distribution and sales. We undertake no obligation to revise or update any forward-looking statement for any reason.

 

Overview

 

We are an innovative beverage company dedicated to offering proprietary products focused towards significant target markets, both domestic and abroad. We are committed to increasing our market size and scope through the optics of creative marketing and most importantly customer satisfaction. Our growth strategies will focus on a number of major initiatives including, unique branding opportunities that will be targeted at key demographic groups, and to develop strong community and distributor relationships.

 

We intend to develop and build name brands focused on strong rates of growth within key fundamental consumer groups. Our goal is to become a leading developer of name brand beverage alternatives geared towards large, significantly important demographics within major markets.

 

Our Common Stock is quoted on the OTC Market Groups, Inc. PINK (the “PINK”) under the symbol "FBEC."

 

In June 2015, we entered into an Intellectual Property Purchase Agreement, Consulting Agreement, and Royalty Agreement with G. Randall & Sons, Inc. providing for the asset purchase of the proprietary hemp-based formula used in our beverage energy shot. G. Randall and Sons will provide ongoing consulting services in blending new formula(s) and working directly with us to improve and blend existing formulas. The asset purchase price was $50,000 composed of a $15,000 cash payment and $35,000 8% Convertible Note with a 6-month maturity date and conversion features of 75% of the average closing price 20 days prior to conversion.

 

Basis of presentation and going concern uncertainty

 

The accompanying unaudited condensed financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), which contemplates our continuation as a going concern, which is dependent upon our ability to establish ourselves as a profitable business twelve months from this report date. At September 30, 2017, we had an accumulated deficit of $7,987,456 and a working capital deficit of $1,784,789. Our ability to continue in business is dependent upon obtaining sufficient financing or attaining profitable operations; however, there can be no assurance that management will be successful in obtaining additional funding or in attaining profitable operations. These matters raise substantial doubt about the Company's ability to continue as a going concern. These unaudited condensed financial statements do not include any adjustments that might result from the outcome of these uncertainties, nor do they include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.

 

 

 

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Critical Accounting Policies

 

There have been no changes from the Critical Accounting Policies described in the Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on July 28, 2017.

 

Liquidity and Capital Resources

 

We began our current operations in February 2014 and have yet to attain a level of operations that allows us to meet our current overhead requirements. We do not contemplate attaining profitable operations in the near future and there is no assurance that such an operating level will ever be achieved. We will be dependent upon obtaining additional financing in order to adequately fund working capital, infrastructure, production expenses and significant marketing related expenditures to gain market recognition, so that we can achieve a level of revenue adequate to support our cost structure, none of which can be assured. These factors raise substantial doubt about our ability to continue as a going concern and the accompanying financial statements do not include any adjustments related to the recoverability or classification of asset carrying amounts or the amounts and classification of liabilities that may result should we be unable to continue as a going concern.

 

As of September 30, 2017, we had cash of $41. Outstanding debt as of September 30, 2017 totaled $1,820,223 which is attributable to accounts payable and accruals of $325,129, derivative liability $939,321 and loans of $555,773. Our working capital deficit as of September 30, 2017 was $1,784,789.

 

We will need to raise additional capital to expand operations and achieve profitability. We may be unable to obtain capital on acceptable terms, or at all. If we are unable to obtain financing, we may request loans from our stockholder to sustain operations; however, we have no such stockholder agreements and there is no assurance that any stockholder would be able or willing to fund our continued operations.

 

Results of Operations

 

For the nine-month periods ending September 30, 2017 and September 30, 2016, we had total revenue of $964 and $1,529, respectively. Our cost of revenues for the same nine-month periods were $501 and $1,136, respectively. The $565 decrease in revenues is primarily attributable to the lack of distribution.

 

For the nine-month periods ending September 30, 2017 and September 30, 2016, we had operating expenses totaling $258,753 and $486,508, respectively, primarily due to wages, consulting, accounting and audit fees. The $227,755 decrease in operating expenses is primarily attributable to the reduction in consulting, accounting and audit fees.

 

For the three-month period ending September 30, 2017 and September 30, 2016, we had total revenue of $443 and $170, respectively. Our cost of revenues for the same three-month periods were $171 and $133, respectively.

 

For the three-month period ending September 30, 2017 and September 30, 2016, we had operating expenses totaling $36,662 and $94,167, respectively. These costs were primarily from wages and consulting fees. The $57,505 decrease in operating expenses is primarily attributable to the decrease in consulting fees.

 

Off Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Inflation

 

Inflation has not had, and is not expected to have, a material effect on our operations.

 

Climate Change

 

We believe that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.

 

Recently Issued Accounting Pronouncements

 

There are no recently issued accounting pronouncements that are expected to have a material impact on the unaudited condensed financial statements or notes thereto.

 

 

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Our Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 ("Exchange Act"), Jeffrey Greene, our President/Principal Executive Officer/ Principal Accounting Officer ("CFO") (“Principal Executive and Financial Officer), initially evaluated the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report.

 

Based upon that initial evaluation, Jeffrey Greene concluded that our disclosure controls and procedures were not effective as of September 30, 2017 to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive and Financial Officer, as appropriate, to allow timely decisions regarding required disclosure, due to the material weaknesses described below. These weaknesses are being addressed with the inclusion of additional board of director members and the intention is to hire a Chief Financial Officer with requisite experience and knowledge of the requirements, at which point we intend to form an audit committee to address and correct all material weaknesses.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the ours annual or interim financial statements will not be prevented or detected on a timely basis.

 

We believe that weaknesses in internal controls and procedures are due to our lack of sufficient personnel with expertise in the area of SEC, GAAP and tax accounting procedures. In addition, we lack the personnel structure, size and complexity to segregate duties sufficiently for proper controls. We have not implemented a formal system of internal control that provides for multiple levels of supervision and review.

 

We are currently without sufficient funds to hire additional personnel with expertise in these areas and to segregate duties for proper controls. Until such time as additional personnel are hired, we t will continue to recognize weaknesses in our internal controls and procedures. We currently engage outside consultants to assist in the areas of tax and accounting procedures.

 

We plan to hire additional personnel to properly implement a control structure during the year ending December 31, 2018. In the meantime, our Principal Executive and Financial Officer will continue to perform or supervise the performance of additional accounting and financial analyses and other post-closing procedures including detailed validation work with regard to balance sheet account balances, additional analysis on income statement amounts and managerial review of all significant account balances and disclosures, to ensure that our Annual Report and the financial statements forming part thereof are in accordance with GAAP.

 

Changes in Internal Control Over Financial Reporting

 

During the nine months ended September 30, 2017, there were no changes in our internal control over financial reporting that occurred during 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations on the Effectiveness of Controls

 

Our disclosure controls and procedures provide our principal executive and financial officer with reasonable assurances that our disclosure controls and procedures will achieve their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within our company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.

 

Management is aware that there is a lack of segregation of duties because we have only one director and executive officer dealing with general administrative and financial matters. This constitutes a significant deficiency in the internal controls. Management has decided that considering the officer/director involved, the control procedures in place, and the outsourcing of certain financial functions, the risks associated with such lack of segregation were low and the potential benefits of adding additional employees to clearly segregate duties did not justify the expenses associated with such increases. Management plans to re-evaluate this situation periodically. In light of our current cash flow situation, we do not intend to increase staffing to mitigate the current lack of segregation of duties within the general administrative and financial functions.

 

 

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

There are no material pending governmental proceedings relating to our Company or its properties to which we are a party, and to our knowledge, there are no material proceedings to which any of our directors, executive officers, affiliates or shareholders are a party adverse to us or have a material interest adverse to us.

 

On October 2, 2017, Power Up Lending Group, Ltd. (“Power Up”) filed a lawsuit against us alleging promissory note defaults, breach of contract for lost profits, breach of contract, and litigation expenses and violations of Section 10(b) and Rule 10(b)-5b of the Securities & Exchange Act of 1934 (Power Up Lending Group, Ltd. v. FBEC Worldwide, Inc., USDC, Eastern District of New York, Civil Action Nom CV- 17-5749). The Complaint seeks money damages for breach of contract and lost profits and reasonable attorney fees of $129,000. On November 19, 2017, we filed counterclaims against Power Up for criminal usury, violation of New York General Business Law 349 in connection with alleged misrepresentations by Power Up, unconscionably and interference with contract and business relationship. Our counterclaims seek an injunction from enforcing usurious loan agreements, more than $1,500,000 of damages and attorney fees.

 

We believe the notes payable and accrued interest in our accounting, through the date of filing this report, is adequate to represent our liability. We intend to defend this suit vigorously and expect to prevail.

 

ITEM 1A. RISK FACTORS

 

We are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act and we are not required to provide the information required under this Item.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

There are no unreported sales of unregistered securities during the nine months ended September 30, 2017.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

The following exhibits are filed with this Quarterly Report on Form 10-Q or are incorporated by reference as described below.

 

Exhibit Description
31.1 Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14a/Rule 14d-14(a)*
32.1 Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 *
101.1 Interactive data files pursuant to Rule 405 of Regulation S-T*

 

*Filed herewith.

 

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

     
February 5, 2018 FBEC WORLDWIDE, INC.
     
  By: /s/  Jeffrey Greene
  Jeffrey Greene
 

President and Treasurer

(Principal Executive Officer, Principal Financial and Accounting Officer and Authorized Signatory)

 

 

 

 

 

 

 

 

 

 

 

  14  

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